Due to the vast number of industries that exist, it is impossible to list every single business expense. However, there is a comprehensive list of common IRS business expense categories applicable to most businesses. In addition, streamlining the process of tracking your business expenses will ensure that you don’t miss out on any tax deductions.
Accounting software like QuickBooks can help you to manage your business expenses throughout the year. With QuickBooks, you can track all of your business expenses by taking a snapshot of receipts with the mobile app or connecting your bank and credit card accounts to QuickBooks. Sign up for your free 30-day trial of QuickBooks so you can see how easy it is to keep track of all of your business finances.
What a Business Expense Category Is
A business expense category is an organized way to group expenses for tax reporting purposes. It’s important to know what type of expenses are included or not included in a category to apply the appropriate rules when it comes to deducting them on your tax return.
Instead of providing a master list that includes everything a business can deduct, the IRS has defined a business expense as meeting two requirements:
- Incurred in a trade or business: A trade or business must be profit-motivated. You must plan and have the ability to make a profit, even if that profit never actually occurs. If the IRS doesn’t believe you ever intended to make a profit, the agency will call your business a hobby and disallow your expenses.
- Ordinary and necessary: According to the IRS, “An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.”
One of the most comprehensive resources on what business expenses are, the qualifications that must be met, and what is and is not deductible is IRS Pub 535: Business Expenses. We have also attached a worksheet of business expenses and their treatment.
Download your free copy of our Business Expense Categories Worksheet. This list is a great quick reference guide that shows the following information:
- A list of the most common business expense categories
- Examples of what type of business expenses are deductible in each category
- Examples of nondeductible business expenses by category
- The tax form you need to complete to claim the deduction
35 IRS Deductible Business Expense Categories
As discussed, it’s impossible to cover every type of deductible business expense. However, we have selected the most common business expense categories identified by the IRS. Below, you will find a detailed description of what’s included in each business expense category and how to qualify for the tax deduction.
1. Employee wages: You can deduct gross wages, salary, commission bonuses, or other compensation paid to your employees. This includes wages paid to a spouse or children, provided they performed services for your business, the amount is fair, and the payments were made through payroll.
2. Employee education expenses: Payments made to employees for reimbursement of tuition, books, and other materials are deductible.
3. Employee benefits: Payments made on behalf of employees to cover the following programs are tax-deductible:
- Accident and health plans
- Adoption assistance
- Cafeteria plans
- Dependent care assistance
- Life insurance
4. Rent or lease payments: Payments made to rent office space, equipment, a warehouse for inventory and supplies, or vehicle lease payments are all tax-deductible. A schedule C business (or sole proprietor) cannot rent property from the business owner. However, an S corporation (S-corp) or C corporation (C-corp) is allowed to rent property from the shareholders as long as the amount is fair.
5. Taxes for leased business property: Taxes paid to a lessor on leased office space, equipment, and vehicles used for business purposes are a deductible business expense.
6. Business interest on the debt for trade or business: Interest payments made on all loans, lines of credit, and other liabilities incurred for your trade or business are tax-deductible. Interest on income tax debt, loans with respect to life insurance and interest on personal credit cards and loans are not deductible business expenses. Starting in 2018, there is a limitation on the maximum deductible interest expense, but the limitation only applies if your average annual gross receipts for the prior three years are greater than $25 million.
7. Payroll taxes: Employment taxes paid on behalf of your employees is a deductible business expense. This includes Social Security and Medicare as well as federal and state unemployment taxes.
8. Excise taxes: If you purchase alcohol, tobacco, or fuel for your business, you may be required to pay excise taxes. The good news is that you can deduct excise taxes on your tax return.
9. Personal property taxes: Personal property taxes paid on business property are deductible. “Personal” in this context refers to property that can be removed from the business without damaging it, as opposed to real property. Some examples of personal property are office furniture and machinery and equipment.
10. Insurance premiums: Premiums paid to protect your business against loss or theft are deductible business expenses. This includes, but is not limited, to the following:
- Natural disasters like hurricanes, earthquakes, and floods
- Business bad debt
- Liability insurance
- Workers’ compensation insurance
- Life insurance
- Insurance on vehicles used for business
11. Self-employed health insurance: If you are self-employed, payments made for medical, dental, and qualified long-term care insurance for yourself, your spouse, and your dependents are deductible. The premiums are not deductible on Schedule C like other business expenses, but rather Form 1040, Schedule 1, line 16 as an adjustment to income.
12. Business startup costs and organizational costs: Costs incurred to get your business up and running are deductible business expenses. Within the first year, you can deduct up to $5,000 for startup costs and $5,000 for organizational costs. Any amount of more than $5,000 can be amortized over a 15-year period.
13. Bad business debts: If you use the accrual basis of accounting, you record income as soon as a service is provided, and the customer owes you money. If you are later unable to collect from the customer, you can deduct the amount as a business bad debt. Businesses using the cash basis of accounting don’t record income until the cash is received, so they never have bad debts. For more information on accounting methods, see our guide to accrual vs cash methods.
14. Travel, meals, and lodging to employees: Reimbursements to employees for travel, meals, and lodging for business travel are deductible.
15. Advertising and marketing costs: Expenses incurred to promote your business are deductible business expenses. This includes, but is not limited to, business cards, flyers, websites, and fees paid to companies like Constant Contact to send promotional emails.
16. Car and truck expenses: If you use your vehicle for business, you can deduct the portion that you use the vehicle for business, not personal use. There is a standard mileage rate that you can use, or you can deduct a portion of vehicle-related expenses like gas, repairs, car wash, and parking fees and tolls.
17. Charitable contributions: A business can deduct up to 50% of the owner’s adjusted gross income as charitable contributions. However, be sure to adhere to the following guidelines:
- For contributions of $250 or more, you must obtain a letter from the organization that includes the amount of the gift and whether or not you received any goods or services in exchange for the donation.
- Volunteered services are not deductible; however, you can deduct costs incurred while volunteering like supplies purchased
- Mileage incurred while volunteering is deductible at 14 cents per mile for 2019
- Donations of goods, services or property are deductible
18. Club dues and membership fees: Membership dues paid to the chamber of commerce and other professional/trade associations of which you are a member are deductible business expenses. Keep in mind that fees paid for the following are not tax-deductible:
- Country clubs
- Golf and athletic clubs
- Hotel clubs
- Sporting clubs
- Airline clubs
19. Franchise, trademark, and trade name: Fees paid to purchase a franchise, trademark, or trade name are tax-deductible business expenses.
20. Interview expense allowances: Any payments made on behalf of a prospective employee during the interview process are deductible business expenses. This includes travel costs like airfare and lodging for candidates who are from out of town as well as parking fees or other costs. Meals are also deductible up to 50% of the cost.
21. Legal and professional fees: Payments made to attorneys, certified public accountants (CPAs), financial planners, or other professionals for your business are deductible business expenses.
22. Tax preparation fees: Fees paid to a tax preparer to prepare your tax return are tax-deductible. If you prepare your own taxes using tax software like TurboTax, the amounts paid to purchase the software and e-file your federal and state tax returns are also deductible business expenses.
23. License and permits: Payments for a business license, liquor license, real estate agent license, and other permits required for your trade or business are all tax-deductible business expenses.
24. Penalties and fines: Penalties paid for late performance or nonperformance of a contract are deductible. However, penalties and fines for breaking a law, such as speeding or filing a tax return late, are not deductible even if business-related.
25. Repairs: Minor repairs to your office, such as painting and plumbing leaks, are deductible business expenses. However, major repairs that will increase the value of the property must be capitalized and depreciated. For example, replacing a roof or heating, ventilation, and air conditioning (HVAC) system.
26. Subscriptions: Subscriptions to magazines and journals that are related to your business are tax-deductible. Personal magazine subscriptions are not tax-deductible.
27. Supplies and materials: Supplies used in your business are tax-deductible. This includes, but is not limited to, the following:
- Ink for printer
- Pens, pencils, and notepads
- Cleaning supplies
- Books and manuals
28. Utilities: Payments made for electricity, telephone, and gas for your office space are deductible business expenses.
29. Telephone: Monthly service fees paid for telephone service in a commercial office space are tax-deductible. If you have a home office, you are not allowed to deduct the basic telephone service charges and taxes for the first line in your home. However, any subsequent telephone lines added for business use are deductible business expenses.
30. Depreciable assets: Purchases made for furniture, equipment, and machinery typically must be depreciated over the number of years they are expected to last. However, most small businesses will be able to deduct 100% of furniture, equipment, and machinery purchased from 2018 through 2022 with the use of bonus depreciation or Section 179.
31. Payments to 1099 contractors: Payments made to independent contractors that provide goods and services to your business are tax-deductible.
32. Home office: If you have a home office, you can deduct $5 per square foot of office space, up to a maximum of 300 square feet. If you prefer, you may deduct a portion of your actual household expenses based on the percentage that you use your home for business. This includes, but is not limited to, the following:
- Real estate taxes
- Deductible mortgage interest
33. Client gifts: You can deduct up to $25 for each client gift that you purchase. This can include gift card purchases, gift baskets, or other items.
34. Continuing education: You can deduct payments for registration fees and materials for seminars and courses that you and your employees attend as part of continuing education credits for your trade or business.
35. 401(k) plan contributions: Your employer contribution to employee 401(k) plans is tax-deductible.
Frequently Asked Questions (FAQs) About Business Expense Categories
We have included answers to the most frequently asked questions about business expenses.
What can be written off as a business expense?
While the IRS does provide some guidance and a comprehensive list of common deductible business expenses, there is no way to give you a list of all deductible business expenses. In general, if an expense is ordinary and necessary for you to conduct business, it can be written off as a business expense.
What can’t be written off as a business expense?
A good rule of thumb when it comes to what you cannot write off as a business expense is anything that is considered or can be interpreted to be a personal expense. In addition, the following expenses are always nondeductible:
- Penalties and fines for violating a law
- Illegal payments such as bribes
- Entertainment, even if connected to business such as entertaining a client
- Country club dues
Can you deduct job expenses?
Prior to 2018, employees could deduct the cost of job-related expenses that an employer did not reimburse. For years 2018 and later, employee business expenses are no longer deductible. However, they are deductible by the employer if they reimburse the employee.
Now that you have a handy checklist that includes the common IRS business expense categories, a brief description, and the tax form to complete, it’s time for you to decide how to track expenses during the year. We recommend that you use accounting software like QuickBooks Online. We have a free QuickBooks course that you can take to learn how to use QuickBooks.
In addition to keeping track of your business expenses, you can track income, bank and credit card accounts, store digital receipts, and run detailed financial statements in just a few clicks. Sign up for QuickBooks to qualify for up to 50 percent discount off a paid subscription; plans start at $25 per month.